The Elliott Wave is a theory developed by stock market analyst Ralph Nelson Elliott. Elliott proposed this theory because he believes that the market has certain cycles. Today, the Elliott wave is still used by various technical analysts to analyze the market.
Elliott wave is said to have a specific cycle in the market. In particular, a total of eight waves, “five ascending waves” and “three descending waves”, are formed as one cycle.
There are different ways to understand and use Elliott wave if you explain it in detail but I will keep it simple so I will appreciate it if you can read it after understanding.
Elliott believed that the market would inevitably correct itself when the market went up or down.
Elliott wave is basically said to consist of five ascending waves and three descending waves, and in terms of an uptrend, five waves occur from the beginning of the uptrend until it reaches the ceiling, and after that it plays the role of a correction. means that the three waves that you have have formed. Even in the chart above, there was an uptrend that peaked in the fifth wave during the retracements.
Since then, the price has moved up and down in three bearish waves. Thus, the trend has ups and downs, and the Elliott Wave is based on the fact that it consists of five ascending waves and three descending waves.
In conclusion, “Bitcoin can use Elliott wave theory”. This is because there are many developments that actually apply to Elliott Wave Theory.
Previously, the actual weekly chart of Bitcoin took Elliott wave theory into account. Since the birth of Bitcoin, the process of market bubble > bubble collapse can be explained by Elliott wave theory. Also, due to the nature of Bitcoin, there is a tendency that “standard methods and theories are easier to know.”
Table of Contents
What is an Elliott Wave?
Elliott Wave Theory is a method of market analysis that is supported worldwide. It was invented by equity analyst Ralph Nelson Elliott (1871-1947).
The Elliott Wave is a great-looking pattern law that applies not only to market price movements, but also to historical cycles of 1,000 years.
Elliott Wave Basics: 5 Ascending Waves, 3 Descending Waves
Elliott Wave Basics: 5 ascending waves, 3 descending waves
Elliott discovered that during the movement of prices, the waves “rise > fall” appear many times with a certain regularity.
In the case of a rising market, it consists of five successive rising waves “rise > fall > rise > fall > rise”, and after that, a bear market correction can be formed by three downward waves “fall > rise > fall”. thing. This is called “5 rising waves, 3 falling waves”. Elliott Wave Theory can be distinguished by remembering three rules:
- Rule 1: The 3rd wave is never the shortest of the 1st, 3rd and 5th upswings;
- Rule 2: The 2nd wave never breaks (retraces) the starting point of the 1st wave;
- Rule 3: Wave 4 will never break the highs of Wave 1.
Elliott Wave Combines Fibonacci and Dow Theory
In TradingView, in addition to the Elliott Wave indicator, you can use a technical indicator called “Fibonacci Retracement”, but for
to master the Elliott wave, it is much better to understand the Fibonacci ratio.
Simply put, Fibonacci is a technical analysis showing that people instinctively feel comfortable with the Fibonacci ratio (0.618, 0.382, 0.236) which is displayed on a chart, which is a collection of investor psychology.
The fact that traders all over the world know it as a technical indicator that looks for crypto trading fundamentals such as dips, reversals and take-profit points means that it will function more like an effective line.
Elliott Wave Chart: Upward 5 Waves
Let’s start with the first half of the 5 waves (impulse wave/impulse wave). The movement of the price in the direction of the trend is called “5 waves up and 3 waves down”, and it moves in a cycle of 5 waves in the first half (the direction of the trend) and 3 waves in the second half (against the trend).
- Movement is slow, but this is the moment to explore bargains. The first ascent. A small number of people started buying, saying: “This brand is cheap!”;
- Strong resistance in the direction of the reversal of the first wave. Often stops at Fibonacci;
- The trend towards the largest fluctuations among the five waves. A 168% growth rate in the first wave is a lot, and there are also 200% and 268%;
- Difficult, but often leveled. It often stops at 3 Fibonacci waves;
- It often grows, and a growth rate of 8% from the first to the third wave is common.
A Trading Strategy That Identifies Great Parts Using Elliott and Fibonacci Waves and Enters Using Dow Theory or Price Action Signals
First of all, in this Elliott Wave trading strategy, we limit the target wave. We will not undertake the difficult and impossible task of mastering all the various waves and patterns included in Elliott Wave Theory and aiming for them all. This is a way to target the 5th wave. Other waves are directed only when they are easily understood. (The reason for this will be explained later.)
Anticipate where the Fibonacci wave ends and then trade in that price range to enter or take profit. A pulse indicator is used. Before entering, we will specify the entry point, stop loss point and take profit point before entry, so this is a trading strategy that is easy to manage the risks. It is a high risk reward trading strategy that has a risk reward ratio condition built into the rules, i.e. a low probability of bankruptcy.
How to Use Elliott Waves in Trading
Used as a benchmark when looking at the timing of profit taking and loss cutting, waves are useful for analyzing price ranges and determining direction. Thus, it will be a guide when considering the take profit line, stop loss line and time.
Accuracy will increase if you use it in conjunction with other technical indicators to increase the basis. Of course, remember to appreciate that there is some possibility of bouncing back on this line instead of being overconfident.
Conclusion
Some professional traders only look at the Elliott wave to identify market resistance and support points before buying and selling. However, the Elliott wave is a technical indicator for Forex experts, so if you are new to Forex, let’s first learn the basic technical indicators. Now that you’ve mastered the basics, try your hand at Elliott Wave analysis.
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